Ukraine Facility and Insolvency: What Changes the EU Requires

Within the framework of the Ukraine Facility programme, which предусматривает up to €50 billion in financial support for Ukraine in 2024–2027, the effectiveness of insolvency procedures is treated as a key indicator of the quality of the justice system. The EU requirements in this area are based on Directive (EU) 2019/1023 and concern not only the existence of procedures, but also their speed, cost-efficiency, and predictability .

In practice, the issue lies not in the absence of regulation, but in how the procedure is structured and operates.

Problem No. 1. Lack of control at the initial stage of proceedings

The current model предусматривает a gap of 14–20 days between the filing of a creditor’s application and the preparatory hearing, during which the debtor is effectively not subject to procedural control . During this period, the debtor retains full control over assets, may alter their structure or affect accounting records, while the creditor has no effective tools to protect its interests.

This creates a situation where the procedure is formally initiated but does not yet function as a mechanism of protection.

The solution to this issue, reflected in professional discussions and judicial practice, lies in shifting judicial control to the moment the application is accepted. This includes the possibility of appointing an insolvency practitioner before the formal opening of proceedings and granting them authority to oversee the debtor’s assets at the preparatory stage. Such a model allows for minimizing asset dissipation risks and ensuring a balance of interests at an earlier stage.

Problem No. 2. Opening proceedings without economic substance

At present, insolvency proceedings may be opened even where the debtor has no assets or real business activity. As a result, the procedure is initiated without an actual estate from which creditors’ claims could be satisfied .

This contradicts the very nature of insolvency proceedings and turns them into a formal exercise.

In EU jurisdictions, this issue is addressed by introducing economic thresholds for access to certain procedures. For instance, German law links the application of specific insolvency mechanisms to measurable criteria such as assets (from €6 million), annual turnover (from €12 million), or workforce size (from 50 employees). This approach filters out purely formal cases and focuses resources on economically meaningful proceedings.

For Ukraine, this implies the need to link procedures not only to the fact of insolvency but also to the existence of real economic substance — assets or an operating business.

Problem No. 3. Financing of proceedings by creditors

In practice, Ukraine’s Bankruptcy Code has created a model where the initiating creditor effectively finances key elements of the procedure. This primarily concerns the advance payment of the insolvency practitioner’s remuneration, which is often not reimbursed.

As a result, initiating insolvency proceedings becomes financially risky, limiting access to justice.

This approach contradicts the logic of the Code itself. Article 9-1 and Part 6 of Article 34 of the Bankruptcy Code impose an obligation on the debtor to initiate proceedings in case of insolvency. Therefore, shifting the financial burden onto creditors appears inconsistent and unjustified .

In EU practice, a different balance is applied: procedural costs are covered from the insolvency estate or subject to guaranteed reimbursement mechanisms. For Ukraine, this requires a reassessment of how insolvency proceedings are financed.

Problem No. 4. Reduction of bankruptcy to liquidation

In Ukrainian practice, insolvency proceedings are often effectively reduced to the liquidation of the legal entity. By contrast, the EU approach focuses on preserving economic value — business operations, assets, and the possibility of continuation.

This issue is reflected, in particular, in paragraph 2 of Part 1 of Article 58 of the Bankruptcy Code, which rigidly ties the procedure to liquidation timelines regardless of whether assets exist .

The alternative logic applied in EU jurisdictions treats insolvency as a process of dealing with an insolvent estate, rather than necessarily terminating the legal entity. This allows for more flexible solutions where economic value can still be preserved.

Problem No. 5. Absence of a mechanism to qualify insolvency

Ukrainian insolvency procedures do not provide a clear mechanism to determine whether insolvency is caused by объективные economic factors or by misconduct of management.

In several EU jurisdictions, this is addressed through a dedicated procedural stage — a specific court hearing aimed at determining the nature of insolvency.

In Ukrainian law, the legal basis for such an approach already exists. In particular, Article 61 and Part 6 of Article 34 of the Bankruptcy Code allow for the assessment of the debtor’s financial condition and identification of signs of wrongful conduct . However, these provisions are not structured as a separate procedural stage.

Introducing such a mechanism would improve predictability of case law and allow for a clearer allocation of responsibility.

In conclusion, the EU requirements regarding insolvency reform in Ukraine are not limited to formal legislative alignment. They require a shift in the underlying logic of the procedure — towards early intervention, economic substance, fair cost allocation, and clear accountability.

Until these elements are effectively implemented in practice, even formally harmonized legislation will not deliver the level of efficiency expected by businesses and international partners.